Result Update 29 October 218 Reuters: L.BO; Bloomberg: L IN One Of The Cheapest Consumer Discretionary Plays s performance (including SPI Cinemas) was in line with our expectations. Individually, and SPI Cinemas also delivered as expected. is poised for a solid 3QFY19, considering some good content hitting screens from Bollywood, Hollywood and regional genres. in concluded two key transactions (1) Purchase of SPI Cinemas (details inside), which gives a significant lead in the attractive South Indian market, both because of the market s purchasing power and because of under-penetration of multiplexes in the film exhibition business. Optically, EV/screen at Rs112mn puts it in the same league as the expensive DT Cinemas one (done in June 215, Rs135mn/screen, organic capex per screen is Rs3mn). However, the SPI Cinemas deal (unlike DT Cinemas) comes with a pipeline of 1 plus screens. Considering the difficulty in getting access to prime locations, the deal looks fair. (2) A convenience income deal with leading online movie ticket aggregators (Bookmyshow BMS - and Paytm) with a significant increase (2.2x) over the previous deal with all the money being paid upfront indicating the bargaining power has. The 22% revenue growth (ex-spi Cinemas) in was driven by 9% growth in convenience income following deal struck with Patym and Bookmyshow and 25% growth in F&B revenues (despite a 3% dip in SPH). The higher growth in these high-margin revenue streams as well as a higher occupancy rate (33.4% versus 29.6% YoY, a strong 9% growth in same-screen footfalls because of better content) should have ideally led to better EBITDA margin. It was flat on YoY basis as incurred one-time costs connected with the SPI Cinemas deal as well as legal expenses to fight the F&B case. Post, we have retained our Buy rating on with a September 219 target price (TP) of Rs1785. The TP is based on target EV/EBITDA multiple of 12.5x September 22E EBITDA. We have reduced the target EV/EBITDA multiple from 14x held earlier because of lower demand for small-caps from institutional investors post new SEBI regulations. It is our view, however, that is a good consumer discretionary story available at a very attractive valuation. While the F&B issue will remain an overhang on the sector until a legal closure is found, we do not believe it represents a credible threat to the industry in the medium to long term. Regarding OTT being a structural threat film exhibition industry has faced this multiple times in the past as well as newer forms of watching content have come up over the decades. As long as there is sufficient theatrical window (two-month one currently in India), and watching movies in theatres remains a key part of out-of-home-entertainment in India, we believe this threat is exaggerated. Estimates recalibrated: In our new estimates we have incorporated SPI numbers which are below the guidance given by (Rs.9bn to Rs1bn in EBITDA in FY2). We have also lowered EBITDA numbers for standalone on the back of lower growth in F&B SPH than earlier expected and incorporating higher cost pressures. Our FY21E EBITDA is about 18% lower than the aspiration of Rs1bn that the company had indicated. About Rs1m EBITDA per screen with 1 screens. A more aggressive foray into Tier 2-Tier 3 towns likely going forward:, in its call, hinted at unveiling of a new growth driver entry into the hinterland of India instead of focusing only on large urban centres which it has been doing for the past 25 years. While there have been talks about this new growth dimension in the past through brands like Pictures, nothing material has really been executed. The management seems to be more serious about this option now. Debt has likely peaked and may come off from its current level: is of the view that with the purchase of SPI Cinemas in and the aggressive roll-out of screens, the debt level will certainly rise. However, it believes the level is comfortable currently and probably peak at net debt/equity ratio of 1x. Maximum net debt of Rs14bn. BUY Sector: Film Exhibition CMP: Rs1,296 Target price: Rs1,785 Upside: 38% Girish Pai Head of Research girish.pai@nirmalbang.com +91-22-6273 817 Key Data Current Shares O/S (mn) 46.7 Mkt Cap (Rsbn/US$mn) 6.6/826.2 52 Wk H / L (Rs) 1,568/1,63 Daily Vol. (3M NSE Avg.) 514,397 Price Performance (%) 1 M 6 M 1 Yr.9 (7.2) (8.8) Nifty Index (9.3) (5.5) (3.) Source: Bloomberg Y/E March (Rsmn) YoY (%) QoQ (%) E Var (%) Net revenue 5,554 6,963 7,86 27.6 1.8 6,974 1.6 Film Exhibition Cost 1,335 1,663 1,65 23.7 (.8) 1,636.9 Cost of food & beverages consumed 385 58 543 41.2 6.9 525 3.4 Employee benefit expenses 587 742 77 31.2 3.8 681 13.1 Other exp. (includes production, distribution & print charges) 2,343 2,678 2,882 23. 7.6 2,919 (1.3) Total expenditure 4,649 5,591 5,845 25.7 4.6 5,761 1.5 EBITDA 95 1,372 1,241 37.1 (9.6) 1,213 2.3 EBITDAM (%) 16.3 19.7 17.5 - - 17.4 - Source: Company, Nirmal Bang Research, Note: Consolidated numbers including SPI. We had projected only till the EBITDA level.
Exhibit 1: Key financials (including SPI) Y/E March (Rsmn) FY17 FY18 FY19E FY2E FY21E Revenue 21,598 23,341 28,494 33,32 39,855 YoY % 15.6 8.1 22.1 16.9 19.6 EBITDA 365 3973 5264 6288 8243 EBITDA (%) 16.7 17. 18.5 18.9 2.7 Adj. PAT 958 1247 186 2469 3324 YoY % (19.3) 3.2 44.8 36.7 34.6 FDEPS (Rs) 2.5 26.7 38.7 52.9 71.2 RoE (%) 1.4 12.2 15.6 16.7 17.8 RoCE (%) 14.2 15.2 15.5 14. 16.6 RoIC (%) 15.9 15.8 17.3 15.8 18.1 P/E(x) 63.3 48.6 33.5 24.5 18.2 P/BV (x) 6.3 5.6 4.9 3.5 3. EV/EBITDA 18.3 16.5 13.2 11.2 8.6 Source: Company, Nirmal Bang Research Exhibit 2: Change in our earnings estimates (new estimate include SPI) Y/E March New Old Deviation (%) (Rsmn) FY19E FY2E FY21E FY19E FY2E FY21E FY19E FY2E FY21E Revenue 28,494 33,32 39,855 27,434 3,339 35,838 3.9 9.8 11.2 EBITDA 5,264 6,288 8,243 5,413 6,94 7,455 (2.8) 3.2 1.6 EBITDA Margin (%) 18.5 18.9 2.7 19.7 2.1 2.8 - - - PAT 1,86 2,469 3,324 1,84 2,232 3,99 (1.8) 1.7 7.3 FDEPS (Rs) 38.7 52.9 71.2 39.4 47.7 66.3 (1.7) 1.7 7.4 Source: Nirmal Bang Research Exhibit 3: Change in operational assumptions- (ex SPI) Actuals New Old Parameter FY16 A FY17A FY18A FY19E FY2E FY21E FY19E FY2E FY21E Number of Screens (YE) 524 579 625 713 81 91 74 769 849 Growth (%) 12.9 1.5 7.9 14.1 12.3 12.5 12.6 9.2 1.4 Number of screens added 6 55 46 88 88 1 79 65 8 Footfalls (mn) 7 75 76 87 98 112 86 9 12 Growth (%) 17.6 8.2 1.1 14.9 11.6 14.3 13. 4.3 13.2 Occupancy Rate (%) 34.6 33. 31.3 32.4 3.7 31.2 32.4 3.5 31.2 Gross ATP 188 196 21 218 228 237 219 231 242 Growth (%) 5.6 4.3 7.3 3.7 4.7 4. 4.2 5.3 5. Net ATP 146 148 164 17 178 185 171 18 189 Growth (%) 5.2 1.8 1.5 3.7 4.7 4. 4.2 5.3 5. Gross SPH 72 81 89 92 11 111 13 19 117 Growth (%) 12.5 12.5 1.4 2.7 1.2 1.1 14.8 6.6 6.5 Net SPH 67 73 8 87 96 16 92 98 14 Growth (%) 13.6 9. 9.2 9.6 1.2 1.1 14.8 6.6 6.5 Advertisement Revenue per screen 4.2 4.4 4.9 5.1 5.5 5.8 5.1 5.5 5.8 Growth (%) 9.8 6.2 1.2 3.2 7.8 6. 4.6 7.6 5.7 Source: Company, Nirmal Bang Research 2
We are positive on the film exhibition sector (see sector report Indian Film Exhibition Sector- Oligopolistic Business In Its Infancy). We believe that: (1) Indian multiplex industry is an oligopoly (top four players control ~7% of screens) and will remain so as entry barriers are quite formidable and there are no substitutes. This industry s structure will deliver steady revenue growth, and improve margins as well as RoIC over a long period of time. (2) and Inox Leisure (the two large players) can deliver in the next 1 years at least 5%-1% volume/footfall growth (new screen-driven, attracting both single-screen and new generation customers) per year, respectively, with rise in realisation of 4%-5%. This will result in revenue CAGR of 1%-15% with PAT growing a tad faster. Structurally, expectations of a rise in relevant customer households which can afford this type of entertainment (currently at 8%-11% of total, in our view) is going to drive demand. Same store/screen sales growth (SSG), in our view, will be realisation-led at 4%-6%. We believe that: (1) These players deserve premium valuations, considering the longevity of earnings compounding and good RoICs. (2) Expensive M&A activity in the past five years and consequent weak return ratios are a small price to pay for achieving consolidation in a nascent industry. Over the long run, as organic growth predominates, the benefits of a better industry structure will far outweigh the price paid. We believe the stranglehold over retail real estate (and slow pace of its expansion) to be the key driver of positive industry dynamics. This will lead to a steady increase in capacity, solid pricing power and a high occupancy rate. The key risk to sector earnings tends to be the volatility induced by success of content. This is a very difficult thing to predict. Some movies may look great on paper, but may turn out to be duds at the box office. But increasingly the content risk is being lowered as Hollywood and regional movies (both in their original and dubbed versions) are able to command a greater share of GBOC. F&B controversy On the PIL to allow outside food into theatres, the management clarified that: (1) The multiplex industry is challenging the high court rulings in various states. (2) The rulings have been in favour of the industry in case of Hyderabad and also various high courts in Madhya Pradesh. The J&K high court ruling is the only one that has gone against the industry and that has been quashed by the Supreme Court (3) It is trying to move various cases at the state level to the apex court and get a common verdict. (5) It has rationalised prices in certain theatres in Maharashtra to address some of the customer concerns surrounding this issue. Why is F&B important F&B constituted ~27%/~3% and ~23%/26% of s and Inox Leisure s revenues/gross margin in FY18, respectively, and the fear among investors is that this lucrative revenue stream would be adversely impacted. The atmosphere has been vitiated by populist posturing of political parties and looks ominous when juxtaposed with the upcoming general elections in 219. To assuage consumers incensed by what seems like prohibitive pricing of F&B, companies have reduced the prices of popular food items by as much as 4% during non-peak hours in certain regions of the country. Based on results, we believe this move has had an impact 15bps-2bps on gross margin of F&B (which is at a high of 75%) and is unlikely to materially impact financials. On the litigation front, industry indicates consolidation and transfer of state-level PILs to the Supreme Court so that the matter can be addressed at the national level and a closure achieved. Our take on the controversy The right to life rationale proffered in the Maharashtra PIL, in our view, is a far-fetched one and will likely not stand legal scrutiny and also cannot be demanded as a fundamental right of the citizens. We believe multiplex film exhibition is: (1) Not considered an essential service by the government and hence tickets are taxed at 28% - the highest rate of Goods and Services Tax or GST. (2) While the industry is quite consolidated, it is not a monopoly as there are single- screen theatres in the market. Single-screen theatres still dominate with 7%-75% of the screen share in the country. (3) A change in F&B business model for the multiplex industry will have adverse ramifications on other segments of the entertainment industry and may even impact the restaurant industry. (4) Ensuring security will be a big problem if the PIL is upheld by the court. On these grounds, the Delhi government had a few decades ago, backed the call to disallow outside food into theatres. (5) There are problems connected with hygiene and maintenance of premium ambience in the multiplex which forms a critical component of the consumer experience. Takeaways from results and analyst call Footfall and occupancy growth s (standalone) footfall growth was at 14% on YoY basis. The occupancy rate was at 33.4%, an increase of 38bps on YoY basis driven by better content. The Top 5 movies: Sanju, Stree, Gold, Mission Impossible-Fallout and Dhadak managed to raise footfalls which increased 74.5% YoY for these movies compared on YoY basis. The occupancy rate also increased by 8.6pps for these movies. Some of the admits growth has probably been driven by the fact that the key competitor Inox Leisure - was not available on the BMS app for around three weeks in because of the tiff between the two. 3
Screen opening guidance held on to despite underperformance in 1HFY19 maintained screen-opening guidance of 9 screens across 16 properties for FY19 (on a standalone basis ex-spi Cinemas). This is despite the number in 1HFY19 being just at 18. indicated that it is on track to achieve the guidance. The SPI Cinemas acquisition has been done to increase the screens in southern part of India where the number of screens grew from 164 to 246 on a consolidated basis and screen openings in FY19 are mostly centred around south. SPI Cinemas is expected to add around 8 screens in 2HFY19. Advertising and ATP set to grow In the conference call, had provided guidance of 15%-2% growth in advertisement revenues for FY19 which it continues to maintain despite delivering just 1% growth in 1HFY19. The management expects to achieve the higher end of its guidance in 2HFY19, likely on the back of a strong 3QFY19. We believe it will likely hit a number closer to 15% rather than 2% for the full year. It expects ATP to grow in line with inflation at ~4%-5%. It also stated that premiumisation of theatres will contribute to growth in ATP. According to, the premium screens had both ATP as well as SPH twice as much as the company average and hence a profile tilt towards additional premium screens will result in better realisation. It stated that growth in FY19 will come from both volume as well as price. The management stated that it was working to build its advertisement revenues by growing on the value front more than on the volume front. The advertising revenues grew by a strong 13% on YoY basis, but the per screen advertising revenue growth declined 7% on YoY basis because of sharper addition of screens from SPI Cinemas acquisition. also said that the prime advertisement markets are: Delhi, Mumbai and Bengaluru where it is focusing. The management said that it will work with a maximum inventory of about 2-22 minutes of advertising in a movie inclusive of the time before the movie and during the intermission. SPH will pick up in 2HFY19 Because of the F&B controversy, had cut F&B prices in Maharashtra and had also come up with deals on certain days. We understand from the company that this has not led to any serious uptick in volume on the F&B front. Against a 3% decline in F&B SPH which was witnessed in, intends to increase SPH in low single digit in 2HFY19. The management aims to tilt the price value equation to the benefit of the customers in order to gain both increase in strike rate and higher volume. This will happen by marketing its offers in F&B more aggressively to the benefit of its customers. The management stated that a bulk portion of growth in F&B revenues was coming from higher conversion and not from increase in F&B prices. It also stated that its strike rate (in the range of 2%-35%) was a function of price-value proposition, cinema location, time of the day when the customer comes to watch the movie, customer profile etc. Following the PIL, the price rationalisation has been significant in Maharashtra where the prices have been slashed by 3% to 4% along with addition of deal days and happy hours. Water has also been subsidised all across India. Cancellations made easier is trying to build a loyal customer base by giving customers the freedom to cancel tickets until 2 minutes before the movie being screened along with giving them ~25%-5% refund. The idea is not to induce customers to cancel tickets, but to engage more with the customer and use the fact that most bookings are done 4 minutes before the movie is screened. By using this feature the customer can book tickets much earlier and the company gets more undecided/on-the-fence customers to book tickets. Spreading across international boundaries using an asset-light model (JV): The management stated that aimed at entering the Middle East & Asia (MENA) region by way of joint ventures or JVs where it could bring in its own operational expertise with the funds provided by JV partners to set up cinemas. It stated that demand for Bollywood content, shopping centre mall development and the need to provide better quality of experience in these markets were among the several factors that led to its decision of foraying into the MENA region. Within MENA region, the management stated that Dubai had three to five flagship projects going on and the Saudi market was opening up. has also established Singapore International pictures and is testing the international waters, though the management was reluctant to comment on the long-term international strategy. 4
Miscellaneous The management stated that 3QFY19 is expected to be the best quarter for FY19 on the back of Diwali festival and the expected release of three to four blockbuster movies. Pipeline of content is strong for 3Q and 4Q backed by bankable star cast. After acquisitions, the D/E ratio has risen to.95. The management has indicated that this ratio will decline from now on. Other expenses increased to Rs5mn driven by one-time expenditure towards SPICinemas acquisition, legal costs for fighting the F&B PIL and agreement costs for Paytm/BMS. Finance costs also included a one-off amount of Rs59mn because of accounting adjustment made pursuant to Ind-AS 19 for income received in advance with respect to long-term contract signed by the company with BookMyShow and Paytm. Rental costs continue to remain under pressure because of new sites and rental renegotiations, and will get offset by increase in revenues. consolidates leadership position by acquisition of a strong South India player, on 12 August 218, entered into an agreement to acquire/merge with SPI Cinemas a prominent south-based film exhibition player. This is through cash-cum-stock deal which will consummate in 12 months. had hinted at a pick-up in M&A when it passed an enabling resolution to raise debt of Rs1bn in May 218 and also in its results call (see our note - Mall Development Pick-up And M&A Could Accelerate Growth). The EV for the transaction is Rs1bn. Valuation of SPI looks optically rich, but is fair if one includes screen pipeline Based on 89 screens that SPI Cinemas will have in the next 12 months, EV/screen works out to Rs112mn per screen which puts this acquisition in the same league as the expensive DT Cinemas one (done in June 215) which had an EV/screen of Rs135mn (capex for an average screen is ~Rs3mn). The only difference here is that the SPI Cinemas deal (unlike the DT Cinemas deal) comes with a pipeline of 1 plus screens. The premium being paid in M&A transactions is because of the high entry barrier on real estate as lock-in period with mall operators is as long as 15-2 years. Considering the difficulty in getting access to prime locations, we believe this pipeline should not be ignored. If one does that, the deal looks fair and falls into the ball park of deal valuation of in the past (~Rs6mn/screen). The -SPI Cinemas deal was discussed in the media in early 215 at around the same kind of absolute EV with half the current screen base. This means that sellers have lowered their valuation expectations considerably. EV/EBITDA for the deal works out to 1x which is where stock was trading at on 9 August 218 based on its FY2E numbers (our estimates). We believe this is a positive development for because: (1) It will be the leader in all key South Indian cities - Chennai, Bengaluru, and Hyderabad. SPI Cinemas was the leader in Chennai market previously. (2) Besides addition of 89 screens (existing + upcoming), a strong pipeline of 1+ screens will be delivered over the next five years. (3) Attractive financial performance of SPI Cinemas with highest occupancy rate in the country and EBITDA margin in excess of 2%. (4) Diversification of content risk. (5) Potential for synergy gains from box office, F&B, and advertisement revenues with a larger geographic footprint. South India, which would have accounted for 26% of its screen base, will now form 35% of the screen base by the end of FY19. While South India contributes half the screens operational in the country (9,53 is the total based on industry data, including single screens), multiplex penetration is at just 14% compared to 6% in North India. South India has the highest occupancy level of 5%-6% - much higher than the national average of 3%-35%. This is partly because of capped ticket prices (which were increased by 25% from Rs12 to Rs16 in Chennai for multiplexes from October 217- base price before GST). The gross ATP (including GST) of SPI Cinemas was Rs141 while that of was Rs21 in FY18. The F&B-related gross spending per head difference was much narrower (Rs89 for vs. Rs83 for SPI Cinemas) which means the higher occupancy rate helps drive high-margin F&B sales. The only downsides we see in this transaction in the near term are: (1) Dilution of return ratios because of the high acquisition price of screens. (2) Incremental pressure on the balance sheet because of slightly higher debt. 5
Details of the acquisition Acquisition of ~72% equity stake in SPI Cinemas was for Rs6.3bn in cash with Rs1bn being deferred payment based on milestones. The remaining ~28% of SPI Cinemas would be acquired through a stock swap with 1.6m shares of being exchanged for it. This amounts to Rs2.1bn based on 1 August 218 closing price of stock. SPI Cinemas apparently carries a debt of Rs1.6bn. The total EV for the transaction thus comes to Rs1bn. The cash portion of the transaction is being funded through internal accruals (Rs3.85bn), new debt issuance (Rs1.5bn) and deferred payment of Rs1bn. The whole process of acquisition/merger is supposed to be completed within the next 9-12 months. The financials of SPI Cinemas have been reflected in starting 18 August 218 (43 days of ). The expectation is that full consolidation of the company with would likely happen by 4QFY19 (compared to just ~72% currently). About SPI Cinemas SPI Cinemas has 76 screens across 17 properties in 1 cities of India currently with 13 more to be added in the next 12 months. It is #1 cinema in Chennai with 31 operational screens including the iconic Sathyam Cinema which was established in 1974. SPI Cinemas operates cinemas under several brands Sathyam, Escape, Palazzo, The Cinema, S2 Cinema. FY18 revenues stood at Rs3.1bn and EBITDA at Rs633mn (2.4% EBITDA margin). Based on our rough math, we believe the RoIC of SPI Cinemas was ~2% in FY18. FY19 revenues are expected to be Rs4.1bn-Rs4.25bn for SPI Cinemas with possibly better EBITDA margin than that in FY18 when both revenues and margins were impacted by film exhibition industry strike on two occasions during the yearwhich apparently led to a loss of more than 45 days of billing. Deal with online ticket aggregators has entered into an agreement with Bookmyshow (BMS) and PayTM (two of the largest online ticketing aggregators) for selling s ticketing inventory for a term of three years. will receive an aggregate amount of Rs4.1bn over the next three years as minimum guarantee and refundable security deposit. Of this, will receive Rs3.5bn as upfront payment. We believe the new deal ensures a minimum convenience income which would be 2.2x what it was previously (~Rs6mn in FY18). Besides, with much of the payment being frontloaded, it eases pressure on s cash flow and balance sheet. This convenience income has very high gross margin with next to no direct costs. The deal kicked in from mid-july 218 and the rest of the payment would come in by the end of FY19. The significant increase got by is indicative of its leadership position in the market and also the likely hypercompetition in the ticket aggregator space driven by likely aggressive bidding by PayTM which has very deep pockets (funded by Alibaba). Media reports indicate that out of Rs4.1bnaround Rs2.35bn is being paid by Bookmyshow and the rest (Rs1.75bn) is being paid by PayTM. There is upside to these numbers as this is a minimum guarantee + revenue share deal (beyond threshold revenues). In, had disengaged with Justdial and Ticketnew as it felt that they were not doing a good job compared to the aggregators mentioned above. 53%-54% of FY19 revenues came from online ticketing - a large part of it from online aggregators and some from its own platform. The ticker aggregators would have likely contributed 45%-5% of total tickets sold. We expect the percentage of tickets sold through the online channel to increase to close to 7%-75% over the coming years. 6
Operational metrics of (ex-spi Cinemas) Exhibit 4: Net box office revenues (Rsmn) (Rsmn) 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 2,32 2,2822,37 1,579 2,7422,746 2,512 2,144 3,433 3,56 2,9932,931 3,124 2,781 2,692 2,646 3,849 3,515 Exhibit 5: Food & beverage revenues (Rsmn) (Rsmn) 2,5 2, 1,5 1, 5 2,27 1,778 1,646 1,475 1,3961,3491,285 1,4231,438 1,571 1,298 1,1961,1361,37 89 98 1,6 691 Source: Company, Nirmal Bang Research Exhibit 6: Advertisement revenues (Rsmn) (Rsmn) 1, 9 867 784 778 8 693 72 718 674 688 7 624 6 539 515 527 5 358 47 457 461 455 381 4 3 2 1 Source: Company, Nirmal Bang Research Exhibit 7: Advertisement revenues per screen (annualised) (Rsmn) 7. 6. 5.6 5.5 5.7 5. 4.7 4.5 4.6 4.6 4.6 4.5 4.8 4. 3.2 3.6 3.9 3.9 3.3 3.5 3.7 3.6 3. 2. 1.. Source: Company, Nirmal Bang Research Source: Company, Nirmal Bang Research Exhibit 8: F&B spending per head (Rs)- SPH Exhibit 9: Occupancy rate (%) (Rs) 1 9 8 7 6 5 4 3 2 63 63 67 61 74 68 74 73 78 84 83 78 87 91 92 87 94 88 (%) 45 4 35 3 25 2 15 1 38.3 37.1 32. 32. 34. 34 27. 28.7 36.2 35.1 35.9 33.4 32.1 32 31.7 29.6 29.1 31.5 1 5 Source: Company, Nirmal Bang Research Source: Company, Nirmal Bang Research 7
Exhibit 1: Footfall (mn) Exhibit 11: Number of screens (mn) 25 2.7 2 19. 18.8 18.5 17.9 18.2 15.2 15.7 16. 16.5 15.3 15 12.2 21 18.7 17.4 19 22.7 21.4 7 6 5 4 445 454 462 467 474 474 491 625 634 643 524 551 557 569 579 587 6 63 1 3 2 5 1 Source: Company, Nirmal Bang Research Source: Company, Nirmal Bang Research Exhibit 12: Gross average ticket price (Rs) (Rs) 25 214 24 212 29 217 211 2 176 181 185 168 183 187 2 182 195 22 199 19 15 1 5 Source: Company, Nirmal Bang Research 8
Exhibit 13: Admits (mn) Exhibit 14: Average ticket price (Rs) (Rsmn) 22 2 18 16 14 18.8 18.5 18.7 21.4 17.3 14.2 16.3 17.8 (Rs) 22 21 2 19 18 17 187 22 24 211 211 28 184 194 12 16 1 Admits (mn) Comparable Properties 15 Average Ticket Price (Rs) Comparable Properties Exhibit 15: Spending per head (Rs) Exhibit 16: Sponsorship revenues (Rsmn) (Rs) 1 9 8 7 6 5 4 91 94 88 88 84 8 68 68 Spending Per Head (Rs) Comparable Properties (Rsmn) 85 75 65 55 45 35 25 778 688 656 624 591 461 469 399 Sponsorship Revenues (Rs mn) Comparable Properties Source: Company, Nirmal Bang Research Exhibit 17: Occupancy rate (%) (%) 4 35 3 37.1 37.7 33.4 33.9 32.1 32.5 29.6 29.8 25 2 15 Occupancy Rate (%) Comparable Properties Source: Company, Nirmal Bang Research 9
Aug-8 Jan-9 Jun-9 Dec-9 May-1 Oct-1 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jul-17 Dec-17 May-18 Oct-18 Exhibit 18: The proforma consolidated P&L of post acquisition of SPI Cinemas Particulars (Rs Lacs) SPI Cinemas Consolidated Income 65,267 5,247 7,514 Net box office 35,15 2,244 37,394 Food & beverage 17,78 1,756 19,536 Advertising 7,782 332 8,114 Distribution income 314 314 Others 4,555 62 5,157 EBITDA 11,521 1,93 12,614 EBITDA margin (%) 17.7 2.8 17.9 Location 138 15 153 Screens 643 68 711 Seats 1,43,53 18,129 1,61,182 Footfall (mn) 21.4 2. 23.4 Occupancy rate % 33.4 54.7 34.6 ATP (Rs) 211 154 26 Source: Company, Nirmal Bang Research Exhibit 19: EV/EBITDA chart (x) 25 2 15 1 5 Source: Company, Nirmal Bang Research EV/EBITDA MEAN 2SD (2)SD 1
Financials (consolidated including SPI Cinemas) Exhibit 2: Income statement Y/E March (Rsmn) FY17 FY18 FY19E FY2E FY21E Exhibit 21: Cash flow Y/E March (Rsmn) FY17 FY18 FY19E FY2E FY21E Net Sales 21,598 23,341 28,494 33,32 39,855 EBIT 2,221 2,481 3,58 4,344 5,83 Growth (%) 15.6 8.1 22.1 16.9 19.6 (Inc.)/dec. in working capital 1,7 748 4,169 (323) (149) Exhibition Cost (Distributor Share) 4,641 5,377 6,721 7,939 9,52 Cash flow from operations 3,921 3,229 7,677 4,21 5,654 Food & BeverAHes Cost 1,41 1,591 2,19 2,84 3,554 Other income 153 313 41 755 63 Employee Benefits Expense 2,25 2,541 3,41 3,429 3,911 Depreciation & amortisation 1,384 1,491 1,756 1,944 2,44 Rent 3,847 4,111 4,9 5,762 6,548 Financial expenses 85 837 1,66 1,24 1,24 Repairs & Maintenance, 97 922 1,5 1,274 1,446 Tax paid 57 74 1,31 1,389 1,869 Electricity & common area 2,493 2,563 3,67 3,58 4,81 Dividends paid 113 93 169 225 281 maintenance Other Exp. (includes production, Net cash from operations 3,971 3,399 7,576 3,865 5,333 2,361 2,264 2,261 2,244 2,551 distribution & print charges) Capital expenditure 3,18 2,6 4,788 5,549 6,293 Total Expenses 17,855 19,368 23,23 27,32 31,612 Increase in other non current 4,134 (9) 7,519 663 773 EBITDA 3,743 3,973 5,264 6,288 8,243 assets Net cash after capex (3,272) 1,348 (4,731) (2,346) (1,733) Growth (%) 9.3 1.2 32.5 19.5 31.1 Inc./(dec.) in debt 1,56 (687) 3,719 % of sales 17.3 17. 18.5 18.9 2.7 (Inc.)/dec. in investments (2,42) 1 2,5 Depreciation & Amortization 1,384 1,491 1,756 1,944 2,44 Equity Issuance (29) (5) (14) 2,5 () EBIT 2,36 2,481 3,58 4,344 5,83 Cash from financial activities 3,952 (739) (1,497) (1,458) (1,457) % of sales 1.9 1.6 12.3 13. 14.6 Others (7,66) 1,413 1,117 3,235 2,912 Other income (net) 153 313 41 755 63 Opening cash 2,223 669 634 1,255 1,197 Interest 85 837 1,66 1,24 1,24 Closing cash 669 656 3,973 3,32 2,652 Exceptional Item 41 6 - - - Change in cash (1,554) (13) 3,339 1,777 1,455 PBT 1,667 1,952 2,852 3,858 5,193 PBT margin (%) 7.7 8.4 1. 11.6 13. Source: Company, Nirmal Bang Research Tax 57 74 1,31 1,389 1,869 Effective tax rate (%) 34.2 36.1 36.2 36. 36. Exhibit 23: Key ratios Net profit 1,97 1,247 1,82 2,469 3,324 Y/E March (Rsmn) FY17 FY18 FY19E FY2E FY21E Minority Interest -1 7-11 - - Per share (Rs) Adjusted Net Profit 1,96 1,254 1,89 2,469 3,324 FDEPS 2.5 26.7 38.7 52.9 71.2 Growth (%) (8) 14 44 36 35 Dividend Per Share 2. 2. 3. 4. 5. Net profit margin (%) 5.1 5.4 6.4 7.4 8.3 Dividend Yield (%).2.2.2.3.4 Source: Company, Nirmal Bang Research Exhibit 22: Balance sheet Return ratios (%) Book Value 26 23 265 367 432 Dividend Payout Ratio (incl DT) 11.8 7.5 9.3 9.1 8.5 Y/E March (Rsmn) FY17 FY18 FY19E FY2E FY21E RoE 1.4 12.2 15.6 16.7 17.8 Equity capital 467 467 467 627 627 RoCE 14.2 15.2 15.5 14. 16.6 Reserves & surplus 9,183 1,286 11,924 16,58 19,55 ROIC 15.9 15.8 17.3 15.8 18.1 Networth 9,65 1,754 12,391 17,135 2,177 Tunover Ratios Minority Interest 45 8 2,521 2,521 2,521 Asset Turnover Ratio 1.4 1.4 1.3 1.1 1.1 Other liabilities 8 16 3,449 3,449 3,449 Debtor days 17 24 22 23 22 Total Debt 7,31 6,614 1,333 1,333 1,333 Working Capital Cycle Days (67) (73) (114) (94) (77) Total liabilities 17,436 17,482 28,694 33,438 36,48 Solvency Ratios Net Fixed Assets 11,53 12,39 16,84 19,4 21,54 Net Debt/Equity.6.5.7.6.5 Intangible assets 4,569 4,55 12,782 12,782 12,782 Net Debt/EBITDA 1.5 1.2 1.7 1.6 1.3 Goodwill on consolidation 71 79 92 92 92 Valuation ratios (x) Long term loans and advances 1,784 2,144 2,39 2,729 3,219 PER 63.3 48.6 33.5 24.5 18.2 Deferred tax asset 433 156 116 116 116 P/BV 6.3 5.6 4.9 3.5 3. Other non-current assets 6,914 6,821 14,215 14,458 14,74 EV/EBTDA 18.3 16.5 13.2 11.2 8.6 Cash & bank balances 669 656 3,974 3,32 2,652 EV/Sales 3.1 2.8 2.4 2.1 1.8 Current Investment 1 11 11 2,511 2,511 M-cap/Sales 2.8 2.6 2.1 1.8 1.5 Current assets 2,125 2,311 2,669 3,12 3,67 Source: Company, Nirmal Bang Research Current liabilities 6,71 7,5 11,532 11,642 11,998 Net current assets (3,946) (4,694) (8,863) (8,54) (8,391) Total assets 17,437 17,482 28,694 33,438 36,48 Source: Company, Nirmal Bang Research 11
Apr-16 May-16 Jul-16 Sep-16 Nov-16 Dec-16 Feb-17 Apr-17 Jun-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 Apr-18 Jun-18 Aug-18 Oct-18 Rating track Date Rating Market price (Rs) Target price (Rs) 5 October 216 Buy 1,235 1,416 1 November 216 Buy 1,223 1,446 6 December 216 Buy 1,69 1,275 6 February 217 Accumulate 1,298 1,315 14 February 217 Accumulate 1,298 1,433 22 May 217 Accumulate 1,514 1,469 31 May 217 Accumulate 1,448 1,494 27 July 217 Accumulate 1,357 1,453 3 October 217 Accumulate 1,42 1,458 1 February 218 Accumulate 1,46 1,59 7 May 218 Buy 1,425 1,776 27 July 218 Buy 1,119 1,746 29 October 218 Buy 1,296 1,785 Rating track graph 17 16 15 14 13 12 11 1 9 8 7 6 Not Covered Covered 12
DISCLOSURES This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as NBEPL ) for private circulation. NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 214 having Registration no. INH1436. NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of this research report. NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. NBEPL or its associates have not received any compensation or other benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged in market making activity of the subject company. Analyst Certification: I, Mr. Girish Pai, research analyst, am the author of this report, hereby certifies that the views expressed in this research report accurately reflects my personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s) principally responsible for the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. 13
Disclaimer Stock Ratings Absolute Returns BUY > 15% ACCUMULATE -5% to15% SELL < -5% This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. NBEPL is not soliciting any action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any such transaction. In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. This research has been prepared for the general use of the clients of NBEPL and must not be copied, either in whole or in part, or distributed or redistributed to any other person in any form. If you are not the intended recipient you must not use or disclose the information in this research in any way. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. NBEPL will not treat recipients as customers by virtue of their receiving this report. This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject NBEPL & its group companies to registration or licensing requirements within such jurisdictions. The report is based on the information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up-to-date and it should not be relied upon as such. We accept no obligation to correct or update the information or opinions in it. NBEPL or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. NBEPL or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. This information is subject to change without any prior notice. NBEPL reserves its absolute discretion and right to make or refrain from making modifications and alterations to this statement from time to time. Nevertheless, NBEPL is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries. Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. Opinions expressed are subject to change without any notice. Neither the company nor the director or the employees of NBEPL accept any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Here it may be noted that neither NBEPL, nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profit that may arise from or in connection with the use of the information contained in this report. Copyright of this document vests exclusively with NBEPL. Our reports are also available on our website www.nirmalbang.com Access all our reports on Bloomberg, Thomson Reuters and Factset. Team Details: Name Email Id Direct Line Rahul Arora CEO rahul.arora@nirmalbang.com - Girish Pai Head of Research girish.pai@nirmalbang.com +91 22 6273 817 / 18 Dealing Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com +91 22 6273 823, +91 22 6636 8833 Pradeep Kasat Dealing Desk pradeep.kasat@nirmalbang.com +91 22 6273 81/811, +91 22 6636 8831 Michael Pillai Dealing Desk michael.pillai@nirmalbang.com +91 22 6273 812/813, +91 22 6636 883 Nirmal Bang Equities Pvt. Ltd. Correspondence Address B-2, 31/32, Marathon Innova, Nr. Peninsula Corporate Park, Lower Parel (W), Mumbai-413. Board No. : 91 22 6273 8/1; Fax. : 22 6273 81 14